Hospital’s State Law Claims against Health Plan Held Preempted by ERISA, Rules NJ Appellate Division

Last month a NJ Appellate Division panel held in three consolidated appeals that a NJ hospital’s state law claims that a health care plan must pay full price for medical services the hospital provided to plan participants are preempted by the Employee Retirement Income Security Act (“ERISA”). St. Peter's University Hospital v. New Jersey Building Laborers Statewide Welfare Fund et al.; St. Peter's University Hospital v. Local 594 — Building Laborers Welfare Fund et al.; and St. Peter's University Hospital v. Local 94 Health and Welfare Fund.

St. Peter’s Hospital agreed to provide medical services at reduced rates to a PPO’s members, one of which was the N.J. Building Laborers Statewide Welfare Fund (“Fund”), provided that the Hospital’s bill was paid within 30 days, but otherwise the Hospital would charge its customary rates.  The Fund is an ERISA employee welfare benefit plan, was a defendant in the consolidated cases, and entered into subscriber agreements with the PPO that included similar rate-reduction terms.

When the Fund failed to pay the Hospital’s reduced rate within 30 days, the Hospital sued the Fund for breach of contract and unjust enrichment in state court, to recover the difference between the discounted rates and the customary rates. The trial court granted summary judgment against the Hospital holding that the claims were preempted by ERISA Section 514(a) which preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . .”

The Appellate Division affirmed and determined that the Hospital’s state law claims were preempted. The Court reasoned that the Hospital’s claims would not have existed but for the presence of an ERISA plan that provided coverage to the members and the Court was “required to examine and consult the terms of the ERISA plan to determine whether the Fund was liable under either state law cause of action.”

If you have any questions or for more information about the Appellate Division’s decision or ERISA and its impact on your organization or your employees’ benefit plans, please contact Patrick W. McGovern, Esq., pmcgovern@genovaburns.com, Gina M. Schneider, Esq., gmschneider@genovaburns.com, or Phillip M. Rofsky, Esq., profsky@genovaburns.com in the Firm’s Labor Practice Group.